What is maximum price you are willing to pay for this bond

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The Borrow & Build Inc. has an outstanding bond with the par value of $1,000.00, 10 years to maturity and annual coupon rate of 9%. The required rate of return on this particular class of bonds is 8%.

a) What is maximum price you are willing to pay for this bond?

b) What are the current (interest) yield and capital gain yield on this bond? What happens to yield-to-maturity, current yield and capital gain yield when this bond approaches its maturity?

c) This bond has a clause that it may be recalled in 3 years for $1,150.00 What is this yield to call on this bond today? Interpret it. Explain why this bond may be recalled?

Reference no: EM131012350

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